The chancellor, George Osborne, has laughed off suggestions he is in a state of panic about the slow rate of Britain's economic recovery, denying that the International Monetary Fund (IMF) has rejected his austerity policies.

Last week, Blanchard said very weak private demand in Britain showed it might be time for policymakers to consider an adjustment to their fiscal plans.

He also warned that Osborne may be playing with fire by continuing with his current deficit-reduction plan. The managing director of the IMF, Christine Lagarde, has been more guarded in her criticisms.

Osborne said of Blanchard: "He is one voice. He has a well-known set of views on this that he has expressed over several years. The IMF will do its analysis of the British economy as it does of all economies when it comes to Britain in May."

He conceded that the UK economy faced serious challenges, but pointed to the fact that the UK's neighbours were having "an even tougher time".

"What the IMF has said, actually, is that the United Kingdom is forecast to grow more than Germany, than France, than the rest of the eurozone," he said.

"The British economy of course faces very serious economic challenges. The fact that the rest of our neighbours are having an even tougher economic time does not help because a lot of our exports do go there.

"We have a slow and difficult recovery because of the problems of the banking system, and those are the problems that need addressing, which is why we have things like the Funding for Lending scheme to businesses to grow and homeowners to borrow."